After a year and a half which Producers lost in excess of $20.00 per head, with the industry losing in excess of $3 billion, US hog supply according to the USDA quarterly hog and pigs report will plummet in mid April 2009. The USDA indicates that pig supply on the first of December was 21.297 million head for under 60 pound pigs (These hogs will go to market beginning in April), compared to a year ago when the hogs under 60 pounds inventory on the first of December was 22,545 million. That would be 1.250 million fewer under 60 pound pigs year over year. If we use 10 weeks of life for a pig to get to 60 pounds. That translates into 125,000 fewer market hogs a week for May, June compared to a year ago. Throw in all likelihood that imported Canadian Market Hog numbers will be at least 25,000 a week less than 2008 due to COOL and you get 150,000 less hogs a week. At least 6 per cent fewer hogs year over year. A huge decline when coupled with the continued decrease of poultry and beef production year over year.

For weeks we have seen the rapid rise of feeder pig and early wean pig prices. You need to look no further than the under 60 pound inventory to see the demand driver. Iowa, the main destination is down 620,000 head in the under 60 pound category year over year. That means 620,000 pig spaces in Iowa empty that had hogs a year ago. That is why the finishers are chasing pigs and pushing prices.

Breeding Herd

The U.S. Breeding Herd is down about 150,000 sows from a year ago. We are surprised by USDA report showing an appreciation of 20,000 sows on the first of December compared to the first of September. We do not believe the inventory grew. There are no new barns. There is nobody adding sows. A small decline we might find plausible. An increase - we don’t think so.

We expect (we have no facts) of the productivity gains we had in the recent past was possibly a function of an underestimated breeding herd. Maybe there was 50 – 100,000 more sows in prior months than ever were picked up in the inventory. As time has gone on these have been found which has made the breeding inventory decline seem less visible. We believe there is no way the US breeding inventory actually gained from September to December. We see no breeding herd expansion on the near horizon.

Counterbalance to Our Optimism

If you want a counter balance to our rapid price appreciation expectations due to the domestic and global supply decline in all meats the economists from the University of Missouri are predicting a lean hog price average of 61 – 66 cents in 2009. With farrow to finish breakevens of 71 – 75 cents a pound you will lose $10 - $25 per head. If you believe them you might as well get out of the business now. The tenured check off dollar fueled Chicken Little Sky are Falling Economists are alive and well. Our New Year’s Resolution is to be not too mean in the commentary (unless our livelihoods are at stake). Footnote Suggestion: Do not take predictions to your bank or use in cash flows.

Hog Prices

All the pigs have been born that are going to go to market before November 2009. There is next to nothing that will or can happen to alter this biological reality. 6 per cent fewer hogs will translate into hogs pushing past 90 cent lean. We had have US weekly marketings average the last few months over 2.35 million a week. In May 2009 we will be under 2 million, 350,000 less hogs a week. Less meat. Same number of consumers. We averaged 79 cents lean in May 2008. A 20 per cent price appreciation due to 6 per cent fewer hogs pushes prices over 90 cents lean (Missouri Economists predicted 64 – 69 AML).

Short term we see the hog price beginning to increase the second week of January and to follow a relentless increase into May of 35 cents lean improving your cash flow $70.00 per head from where it is now.

Another reason for optimism is the Iowa and Minnesota Live hog weights. Last week Iowa – Minnesota averaged 266.6 pounds. 4.5 pounds per hog lighter than last year’s 271.1 pounds. We have current market inventory. This is bullish.

Other Observations

• A new website Pigcareers.com has been recently launched for swine industry related job opportunities. This week Genesus has an ad for a U.S. Midwest salesperson. Currently Pigcareers customs who wish to post an ad can do so free as a onetime introductory offer. We believe it is good for our industry that a dedicated swine industry careers site has been initiated.
• European Union which 18 months ago had over 15 million sows continues to show liquidation. Last week Germany announced 140,000 fewer sows in inventory. Poland could be off 20 per cent in 2009 compared to 2007.
• United Kingdom is predicted to be down 4 per cent in 2009. Last week one of our associates returned from the UK and reported the hog price was over $1.00 US per pound. UK producers are making a little money now but it had to be hard.
• Russia last week agreed to doubling from 50 million to 100 million tonnes (2009) US pork imports at the low tariff rate. Bullish for US producers. We are not surprised Russian hog producers are getting over $1.30 US per pound. There is not enough Pork in Russia to meet the domestic consumption needs. At $1.30 US per pound Russian producers should be making lots of money and obviously some pork being imported is not hurting their fortunes. (Best situation: have the Russian Pork Import Permits).
• Brazil last week reported a significant increase of corn in inventory. Less exports and less corn being fed to Brazil’s livestock and poultry was the reason given. US corn exports continue to lag USDA predictions by 10s of millions of bushels. You do not need to import corn if you do not have the livestock or poultry to feed it to. There is less meat coming in 2009 – domestically and globally.
• As the US consumer decreases their frequency of visits to restaurants, we expect Pork will do better. A point of purchase in retail stores pork does well. We are weaker than chicken and beef in restaurants but pick up steam at the retail meat counter. This will hold demand. Pork farm to retail price spread is quite high. Currently, (demand positive) as pork supply declines in 2009 this will become price supportive for producer prices as retailers have room for our percent of margin to increase.

Summary

Fewer hogs and stronger prices are coming. Less chicken, less beef, and less pork are creating a scenario not seen for two generations. The global meat decline is a reality. Strong pork prices internationally are going to be a magnet to pull US pork and maintain exports. We all need it.

Further Reading

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You can view the USDA Quarterly Hogs and Pigs Report - December 2008 by clicking here.